Australia’s dollar will extend declines that have made it the worst-performing major currency over the past three months, according to Credit Suisse Group AG, TD Securities Inc. and Bank of America Merrill Lynch.
Credit Suisse said the Aussie will drop within 12 months to 75 U.S. cents, a level unseen since May 2009, from 91.10 as of 2:33 p.m. in Sydney. It sees the currency at 87 cents in three months. TD lowered its Dec. 31 forecast to 90 cents and said the central bank will cut interest rates this year, while Bank of America sees it at 89. The Australian currency fell 13 percent since April 4, the biggest drop among 31 major peers.
Reserve Bank Governor Glenn Stevens said yesterday the Australian economy will probably get a lower exchange rate if it needs it, a day after he kept borrowing costs at a record-low 2.75 percent and said the inflation outlook provided scope for further reductions.
“Our feeling remains that either the dollar will continue to fall naturally, or the RBA will need to give it another push with a further interest rate cut,” Credit Suisse strategists including Singapore-based Ray Farris wrote in an e-mailed note to clients yesterday.
The Australian dollar touched 90.37 cents yesterday, the lowest since September 2010. It has fallen 8 percent this year against 10 developed-nation currencies, the worst performance after the yen in the Bloomberg Correlation-Weighted Indexes.
Traders expect at least one more RBA rate cut by Dec. 31, swaps data compiled by Bloomberg show.
Prime Minister Kevin Rudd this week flagged the risk of Australia’s first recession in more than two decades and called for “full use” to be made of a falling exchange rate to boost manufacturing, services and agricultural industries.
The statistics bureau said today the number of permits granted to build or renovate houses and apartments fell 1.1 percent in May after climbing a revised 9.5 percent in the previous period. Figures released yesterday showed gains in retail sales were less than expected in May, while a separate report indicated sales of new homes climbed at the slowest pace since they declined in February.
Bank of America said its forecast for a decline to 89 cents could prove optimistic if the slowdown in China, Australia’s biggest trading partner, intensifies more than its analysts are expecting.
“This forecast obviously does not assume a China hard landing,” said David Woo, the New York-based global head of rates and currencies at the bank. “This assumes that China is still growing probably somewhere around 7 percent, but anything lower than that -- and that’s clearly where the risk is -- Aussie will be trading a lot lower.”
China will probably grow 7.7 percent in 2013, the median estimate in a Bloomberg News survey of economists showed, which would be the weakest full-year expansion in 14 years. Analysts see the Australian economy gaining 2.5 percent this year, the slowest pace since 2011.
TD Securities lowered its 2013 forecast for gross domestic product to 2.7 percent from 3 percent previously and now sees the overnight cash-rate target falling by another 25 basis points to 2.5 percent by year end, according to an e-mailed note to clients today.
The bank also lowered its forecasts for the Aussie, saying it will fall to around 90 cents by Dec. 31 and trade from 85 to 90 cents over 2014. TD previously estimated the currency would be at 96 cents at year’s end.
“Australian growth has not been as robust as we expected,” Annette Beacher, Singapore-based head of Asia-Pacific research at TD Securities, wrote in the note. “The RBA Board’s insistence that the Australian dollar remains high despite the 10 big figure correction in recent months speaks to us that the bank is determined to assist the currency lower in any means possible.”